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Image: blog.medicareright.org

The GOP Administration has announced a new drug price reduction program that will use a basket of prices that 16 nations pay for certain drugs in the Medicare Part B Plan (hospital and health services plans) to determine the price the federal government will pay. Biotech drugs which are extremely expensive, yet have high efficacy are to be targeted. The price reductions will be phased in over a 5 year period.

The difference between what the U.S. pays for many often prescribed medicines is huge as the following chart shows:

Sources: Bloomberg, The Washington Post – 10/26/18

How did U.S. prices get so much higher than other nations? Simply, the other countries negotiated tougher than we did. The pharma industry lobby in Washington spends tens of millions of dollars every year to persuade lawmakers and the White House to give drug makers complete pricing freedom. In effect, Americans are paying for the low prices other countries receive where the drugs are being sold with low margins or below margin. Pharma companies do not have a problem with this inequitable situation as long as they make money.

For example, in the U.S. Genentech, a division of Roche, prices a single dose macular degeneration drug Lucentis at $1000 while the same exact bio medicine – Avastin costs 10 times less. The firm says that the extra testing for the eye version requires a higher price. This premise disputed by scientists who worked in the Lucentis division and left in part due to the greed of management.

The administration is also planning on developing ways to give the private sector more leverage in negotiating prices with drug makers. Plus, HHS wants to create new policies that would reduce incentives for doctors to prescribe expensive drugs.

Next Steps:

We applaud the GOP Administration for taking on the drug companies and their money making over all else approach to drug pricing. The pharma companies most affected are stung by the plan and charged it with ‘socializing medicine’. We don’t see their gouging prices to Americans as fair and equitable, so controlling prices to reasonable margins is common sense not a value shift of the health industry.

A good place to start cutting costs is to end prescription drug TV advertising like over 100 countries worldwide ban – that would allow the firms to cut billions off prices each year. Next, they need to end stock buybacks which take shares off the market to increase share price.

Sources: Leerink Group, Market Watch – 10/30/18

These are the top 6 of all pharma firms wasting money on goosing their stock price with stock buybacks to increase stock compensation to executives while patients get hit with soaring drug prices. Nearly $100 billion dollars spent in the last year would go a long way to bringing down the price of drugs. When the industry cries it does not have funding for research it needs to start here and drug advertising if they tried harder to find the money they could. The executives just don’ want to take a pay cut and run their firm with reasonable margins, yet are fine with driving patients into bankruptcy or adding thousands of dollars of debt to patient accounts.

The GOP plan does not go far enough, all medicines purchased by Medicare and HHS should be negotiated. The negotiating authorization for HHS has been in numerous bills in Congress repeatedly defeated in by the drug lobby. Congress needs to pass the bill, and get moving with a fair drug pricing model, with complete transparency from insurers and pharmacies to patients. The federal government can learn from the assertive approaches many states are taking by looking a efficacy based pricing to bring prices within reason as well.

It is time the pharma industry took a hard look at its financial engineering and redesign a more equitable pricing and reasonable profit model for patients, hospitals and suppliers.

There are 3.5 million direct health care workers in the workforce today. The Bureau of Labor Statistics estimates that another 1 million direct health care workers will be hired by 2024. Direct healthcare workers include mostly all the assistant positions except a registered nurse: personal care workers, home health aides, and nursing assistants.

Sources: Bureau of Labor Statistics, Vox – 7/3/2017

Direct care workers often receive a wage below $15.00@hr. About 90 % of personal assistants receive $30,000 or less per year in income. One reason wages are so low is that 70 % of all long term care costs are paid by Medicare and Medicaid. These agencies reimburse care providers on a fixed cost basis. There is another reason. A high number of administrators are being hired rather than physicians, nurses or direct care workers.

When viewed from the perspective of healthcare spending per capita, administrator hiring was about 650 % more than overall per capita services. Healthcare is a lucrative sector for business, so they focus on hiring more administrators and managers rather than nurses and direct care workers. Healthcare providers can take the wages they pay too many administrators and give caregivers the wages they need to take are of themselves and their families. The byzantine way the healthcare industry is structured with insurance companies between the providers and workers when we only need one government agency to manage insurance is a good example. Most providers have who departments devoted to interacting with insurers and Medicare staff, which expensive to staff with specialized expertise due the idiosyncrasies of insurance policies.

Next Steps:

We clearly need to use computer systems and software to reduce the number of administrators and overhead in the system to the norm of per capita costs. End the use of private insurers except as contractors to a single government agency, use a standard reimbursement procedure with no middle layers of pharmacy benefit managers and end go to middle managers for insurance companies.

“The core need is to provide low cost effective health insurance for all people (like all developed countries do), so when illness strikes patients receive high quality care and become healthy again. Why do we need multiple insurance payers – private and the federal government? If we were running a corporation we would not have two accounts payable departments? We need to transition to individual health accounts that stay with the patient regardless of employment status beginning at birth. Here are ideas on how this transition could work.

Complete Analysis of ACA – We need to learn from the public exchanges that work – California’s public exchange has been quite successful covering new patients, and keeping costs reasonable for low income patients. Yet, we also need to look at why those exchanges like Oregon are not working well and expensive. Let’s summarize the analysis and publish the results so we can build a consensus around the solution, extending what works and recommendations for changes.

Priority One Cover the 9 Million Uninsured – those not covered by insurance need insurance now, we need to figure out how to cover 100 % of our citizens immediately. Offering a public option on the exchanges for basic health services and drug coverage would be a good start.

End State by State Coverage – state pools not large enough to make insurance work for all. With 360 million people in the US we can make our health insurance pool work to reduce costs. Plus, legislation needs to be passed to reverse the Supreme Court decision to allow states to opt out of subsidies. For example, Texas opted out on $10 billion subsidies leaving many low income families without insurance or very high premiums they cannot afford. Interestingly, a few months ago I talked with a small business office manager in Texas, she complained that ACA was not working (her firm did not offer health insurance), for her hourly staff. Obviously, one reason is that Texas opted out of the subsidy program. Using a national pool would help to spread out the disparities between regions in terms of the rising cost of insurance versus stagnant wage increases.

Create Individual Health Accounts – funding can be setup via a payroll tax, accrued to a personal national health insurance account when working (if they don’t have employer options – to be transitioned later). For individuals or families below the regional poverty level they would pay no health payroll tax. For those individuals who are not contributing to their health account, the federal government would fund a basic health and drug account by progressive taxes on wealthy individuals over $250k and the increase taxes on corporate profits. Corporations can offset the increased tax, by offering lower cost insurance, medigap plans or encouraging their employees to move to the basic national health insurance program.

End COBRA – by setting up health accounts regardless of being employed, there is no need for COBRA plans. Otherwise, for those unemployed to continue coverage often they have to pay soaring COBRA premiums up to 400 % of their employed premium rate. For this author, two major illnesses occurred when I was unemployed, often with the stress of being unemployed is the time we need health insurance. COBRA is another example where health insurers are charging outrageous rates to those who need the insurance badly but can least afford it. For the unemployed they could rely on basic health coverage in their individual health account.

Transition Employer Plans – convert employer plans over 4 years into a national personal health care account. Rollovers can be accomplished in a similar way to 401K to IRA rollovers (without the penalty for early withdrawal). Ending employer programs will cut a layer of administration in benefits departments that more rightly belongs to the individual regardless of employment status.

End Penalties For No Insurance – we want to to tax behavior we don’t want and support or subsidize behavior we do want. All Americans who have Social Security numbers should be able to enroll in a personal health insurance account, if they do not have a employer sponsored program. Parents can apply for a SSN for their child to be covered. A public insurance option should be offered to all those families not in employer sponsored programs. The public option run by Medicare is a basic health insurance program run similar to basic Medicare for seniors with medigap plans to cover the other 80 % of coverage needed.

Use the Medicare Drug Formulary – we don’t need multiple formularies and tiers of drug coverage. Medicare already provides one formulary which should be used as the industry formulary. We need to empower Medicare to negotiate all drug prices and health procedures with providers with provision for regional differences on procedures. A critical medication list can be created by Medicare for life threatening (Epipens) or serious chronic conditions (diabetes) capped at 5% profit for drug manufacturers.

End Stock Buybacks by Insurers – insurers need to end stock manipulation and the waste of stock buybacks. Companies like Aetna have spent billions of dollars on stock buybacks which would go a long way to reducing premiums and costs to patients.

Pricing needs to be transparent – similar to a mortgage disclosure statement. The explanation of benefits and drug claim form needs to be clear about the provider or drug price, any discounts and rebates, the price the insurer is paying, the price the provider is actually requiring, the price the pharmacy is paying and the exact out of pocket cost to the patient, with patient accruals in out of pocket and co pays toward insurance coverage.

Do it Without Waiting – let’s get progressive investors to back drug manufacturers that adhere to drug cost reasonable, critical med list, transparent pricing innovative insurance, publicize get more investors on board. Work with Wall Street to setup an ETF stock to focus on companies adhering to the progressive national health programs demonstrating good returns.

Awareness of What Works – A media campaign with surrogates, leadership in Congress, interest groups like the AMA, and the insurers to bring the American people along on the solution journey and to put pressure on Congress to pass the necessary legislation.

Health insurers would focus on medigap plans, taking risk out of innovative drugs to help speed them to market, vision and integrative medicine, personalized medicine, telemedicine – taking their layer out with reduce costs dramatically. They can be contractors to Medicare for transition to health accts. Or insurers can be contract administrators to Medicare, keeping costs low and utilizing their expertise.

Lets establish a lifetime health insurance program that provides good quality care, and low cost medications for all Americans.”

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab.)

Photo: healtheconomics.com

Several states including New York, Vermont, Massachusetts and California have begun initiatives to take on drug companies for the their exorbitant prices of new drugs. New York is taking a price versus effectiveness approach with a new drug called Orkambi for cystic fibrosis. The New York state Medicaid department is demanding a lower price as it is not clear the drug helps patients with the disease better than existing treatments. Vertex, the manufacturer of Orkambi made $1.3 billion in sales from the drug which is a high sales level for a drug that is marketed to only 26,000 eligible patients. Vertex prices Orkambi at $272,000 for one year of doses. The drug costs so much that some insurers pass on the high costs to patients in some cases $3000 per month.

Dr. Steven D. Pearson, President of the Institute for Clinical and Economic Review is working with New York officials on a state board case against Vertex to bring the price down. The state board found that Orkambi did not meet the effectiveness claims by the manufacturer so New York should receive a 77 % discount. Dr. Pearson said his evaluation of the costs indicated that the drug could be discounted by 77 %.

The U.S. is alone of all major developed countries in not directly regulating drug prices. In Europe health services officials do not accept high prices for drug with marginal value and negotiate using their purchasing power to bring the price down. Congress has consistently bowed to the drug lobby by not speeding generic drugs to the market and not including in any drug bill the power for Health and Human Services to directly negotiate the price of all the medications it covers for U.S. patients.

Time is up for the drug companies and insurers gouging patients with soaring prices while they make hefty profits and executives pocket huge compensation packages. Drug companies need to stop buying back their stock, wasting the money that could be used to bring the price of their drugs by billions of dollars. Congress needs to give HHS the power to negotiate prices and effectiveness limits on drugs of dubious value the way most developed countries in the world do today. Over the past decade pharmaceutical companies have found that their exorbitant prices have not stuck in Europe or other developed country market, so they jack up the price of the medication in the U.S. where there is little regulatory constraint.

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab.)

Photo: gcgi.com

Last Friday, a federal judge struck down a policy shift by the state of Kentucky approved by the GOP Administration to require all Medicaid patients to work, or volunteer to receive benefits. Judge James E. Boasberg of Federal District Court for the District of Columbia, an appointee of President Obama, handed down a ruling that the Trump administration’s approval of the plan had been “arbitrary and capricious” because the plan had not provided for state support of medical insurance for all citizens “ a central objective of Medicaid.”

So of the 41 % not working who is going to work? The Administration said those that are disabled, ill, in school or caregiving will not be required to work or provide community service. Does that mean that those that are retired will be required to find work? Only 8 % said they could not find work. We view this as the beginning of an effort to cut down the rolls and thus the costs of Medicaid. Instead of being viewed as a welfare program, Medicaid should be viewed as medical insurance. We don’t ask Medicare enrollees to work, and private insurers don’t ask for patients to work.”

We are pleased to see that Judge Boasberg agreed with us that Medicaid should be viewed as medical insurance not a benefit for work program.

The view that if people don’t work they don’t need health insurance is patently false. People need health insurance from the day they are born, whether they are working or not, married or not, being a volunteer or caregiver or not. What happens today is we all pay in increased premiums and health provider pricing for those that do not have insurance when health they use medical services. Often, these uninsured patients are charged an exorbitant price which is not usually what the cost is of he service or test, they patient can’t pay it because they have no insurance, then the hospital writes off the loss. Finally, to recover these unfunded losses the hospital charges more to other patients because the uninsured patient is an overhead cost.

Next Steps

Our recommendation is for a national medical insurance program for all which is inclusive of employer based plans for those that are working. We detailed our plan in our blog – The Free Ride Is Over: Time for Single Payer Insurance. As we noted in our call for a single payer plan:

“The idea of insurance is that we establish a large pool of 360 million people, to spread the costs of the sick along with the well, so that when the well get sick they will have services that don’t cost an unreasonable amount. The health insurers have somehow talked the American public into the idea that they get to cream off the well pool from the sick one (which is more expensive) and then sock it to people that are sick. That is just plan wrong.”

So of the 41 % not working who is going to work? The Administration said those that are disabled, ill, in school or caregiving will not be required to work or provide community service. Does that mean that those that are retired will be required to find work? Only 8 % said they could not find work. We view this as the beginning of an effort to cut down the rolls and thus the costs of Medicaid. Instead of being viewed as a welfare program, Medicaid should be viewed as medical insurance. We don’t ask Medicare enrollees to work, and private insurers don’t ask for patients to work.

Next Steps:

Enroll US citizens into healthcare insurance at the time of birth (our blog in depth), establishing a healthcare account with Medicare for all. The idea of insurance is that we establish a large pool of 360 million people, to spread the costs of the sick along with the well, so that when the well get sick they will have services that don’t cost an unreasonable amount. The health insurers have somehow talked the American public into the idea that they get to cream off the well pool from the sick one (which is more expensive) and then sock it to people that are sick. That is just plan wrong.